I have to admit this is a growing point of contention for me in the financial services industry. I came across a 401(k) plan the other day for a person in her late sixties who has had a very successful career. She asked our advice about rolling over her 401(k) to an IRA. As we looked into the account, we discovered there was one mutual fund in the account worth over $2 Million. On the face of it, there’s nothing wrong with that. There are many great funds actively and passively managed by brilliant, great managers out there.
My point of contention was the selection of the fund. Someone, or some computer program, chose this particular fund based on her birthday, and her guessed her retirement date without asking her! Yes, she is 68 years old, but if one were to ask her, they would find she plans to work for another eight to ten years! The fund, (again, nothing wrong with funds themselves,) was allocated 80% fixed income and 20% equities! That meant she was earning interest and dividends she would not yet need to spend, and would not be able to capture the appreciation and volatility of the market equities provide!
We advised her to call her plan manager and ask to change to a more aggressive strategy. It was quite an ordeal, but, in the end, the change was made. Afterwards, it wsa clear to her and to us the system was not designed for that flexibility.
A little footnote: The above mentioned mutual fund may have been a perfect choice for a 68 year who is actually on the brink of retirement.
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